These are appeals by Rest Haven-Chestnut Hill, Inc. (Rest Haven) from the orders of the Board of Finance and Revenue sustaining the original settlements of its capital stock tax for the fiscal year ending March 31, 1972, at $3,000, and for the fiscal year ending March 31, 1973, at $3,500. By order of this Court dated September 28, 1977, the appeals were consolidated for purposes of trial and argument.

Rest Haven had filed its Capital Stock Tax Reports for fiscal years 1972 and 1973 self-appraising

[ 35 Pa. Commw. Page 117]

the value of its capital stock at $170,000 and $120,000 respectively. The Department of Revenue, with the Department of Auditor General approving, settled the capital stock tax against Rest Haven based on a value of $300,000 for 1972 and $350,000 for 1973. A Petition for Resettlement of its capital stock tax was thereupon filed by Rest Haven with the Resettlement Board, which, after hearing, affirmed the original settlement. Rest Haven then filed a Petition for Review with the Board of Finance and Revenue, which, after hearing, sustained the original settlement. An Appeal and Specification of Objections was filed with this Court by Rest Haven pursuant to Section 1104 of the Fiscal Code, Act of April 9, 1929, P.L. 343, as amended, 72 P.S. § 1104. The parties have agreed that a trial by jury be dispensed with in accordance with the provisions of Section 1 of the Act of April 22, 1874, P.L. 109, as amended, 12 P.S. § 688, and have entered into a stipulation of facts. This stipulation we adopt as our findings of fact and incorporate them herein by reference.

The valuation of capital stock is governed by Section 601 of the Tax Reform Code of 1971 (Act), Act of March 4, 1971, P.L. 88, as amended, 72 P.S. § 7601. It is provided therein that in ascertaining the actual value of a corporation's capital stock the following criteria must be considered:

[F]irst, the average which said stock sold for during the year; and second, the price or value indicated or measured by net earnings or by the amount of profit made and either declared in dividends, expended in betterments, or carried into the surplus or sinking fund; and third, the actual value indicated or measured by consideration of the intrinsic value of its tangible property and assets, and of the value of its good will and franchises and privileges,

[ 35 Pa. Commw. Page 118]

as indicated by the material results of their exercise, taking also into consideration the amount of its indebtedness.

The first consideration, the average selling price of the stock during the year, is not relevant here since Rest Haven is not a publicly held corporation, being a wholly-owned subsidiary of another Pennsylvania corporation, and none of its stock was sold during the years in issue.

With respect to the other two criteria, the following financial data comprises the basis for resolution of the present controversy. For the year ending March 31, 1972, Rest Haven reported a book equity of $157,695. The net earnings of the corporation were $39,529 and the average net earnings over the previous five-year period were $37,083. No dividends were paid during that year, but the five-year average dividend pay-out amounted to $60,000. For the fiscal year ending March 31, 1973, Rest Haven reported its book equity at $67,618. This figure was subsequently revised to $157,695. Its net earnings were $59,923 and the ...

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